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Submitted by
Abhinav Dutt
Division A, Roll Number 08, Batch 2011-2016
Symbiosis Law School, NOIDA
Symbiosis International University, Pune.
In
October, 2014
Under the guidance of
Dr. Amit Bagga
Faculty, Mergers and Acquisitions Law
Symbiosis Law School, NOIDA
CERTIFICATE
other
sources
and
incorporated
in
the
thesis
has
been
duly
acknowledged.
I understand that I myself could be held responsible and accountable for
plagiarism, if any, detected later on.
Acknowledgement
I would sincerely like to thank Dr. Amit Bagga, Professor-in-charge, Mergers
and Acquisitions Law, Symbiosis Law School, NOIDA for helping me
throughout in the college campus in all my endeavors. I would also
especially like to thank my class mates who have helped and guided me
continuously to finish this piece of work. In the end,I would like to thank
each and everybody who has helped us directly and indirectly to complete
my project.
INDEX
List of Contents:
S. No.
1.
2.
3.
4.
5.
Description
Introduction
Takeover Code: Conceptual Skeleton
Some Cases Discussed
Conclusion
Bibliography
Page No.
5
6
26
29
30
INTRODUCTION
The Indian regulatory landscape has witnessed dramatic changes over the
past few years with significant modifications proposed to the direct and
indirect tax regimes as well as several corporate and securities laws. One of
these important changes has been introduced by SEBI- the overhaul of the
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
('The Takeover Code'). The takeover of a substantial number of shares,
voting rights or control in a listed Indian company attracts the provisions of
the Takeover Code. The Takeover Code regulates the process of acquisition
of additional shares by an acquirer, once the acquirer has ownership of a
designated level of shareholding or voting rights in a listed company. The
Takeover Code has been amended by the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011, in operation from October 22,
2011 ('the New Regulations'), which form the primary focus of this paper.
The new amendments introduced by SEBI have largely been made on the
basis of the July, 2010 report submitted by the Takeover Regulations
Advisory Committee, under the chairmanship of Mr. C. Achuthan ('the
Committee').
The
Committee
was
constituted
by
SEBI
to
suggest
experience
of
capital
markets,
and
various
judicial
The New Regulations have made, inter alia, three fundamental modifications
to the Takeover Code, which experts believe will substantially affect merger
and acquisition activity in the Indian market. The first change has been to
increase the initial open offer threshold, which triggers the application of the
Takeover Regulations, from 15% to 25% of the shareholding or voting rights
in a company. The second change has been to prohibit the payment of
separate non-compete fees to the controlling promoters in the acquired
company. The third change has been to increase the minimum offer size
provided by the acquirer to public shareholders of the target company from
20% to 26%. While most of the Committee's recommendations have been
approved by SEBI in their entirety, a few have been modified to
accommodate the views of Indian chambers of commerce, such as FICCI,
ASSOCHAM and CII and of industry experts and professionals on the
Committee's report. Two notable proposals of the Committee which were
rejected were the proposal of 100% minimum offer size and the proposal of
automatic delisting of shares on a particular level of shareholding being
reached by the acquirer.
the
Indian
M&A
regulatory
skeleton
has
witness
emotional
(a).
(b).
(c).
(d).
(e).
exploration,
the
mean
and
average
of
promoter
shareholding
through
multiple
secondary
market
change of control and such Acquirer will need to make an open offer.
The promoters, irrespective of their level of shareholding, will
undoubtedly be concerned about any Acquirer misutilising the new
provisions to assume greater control in decision making within the
Target Company. However, at the same time, this will help listed
companies to get in more investments without triggering the open
offer requirement as early as 15%, therefore making the process more
attractive and cost effective, which is projected to lead to an increase
in M&A activity in the Indian economy.
1.2.
Creeping Acquisition
11
The Takeover Code, 2011 makes the position simpler. Now, any
Acquirer, holding 25% or more but less than the maximum permissible
limit for non-public shareholding can purchase additional shares or
voting rights of up to 5% every financial year, without any requirement
of making a public announcement for open offer. The Takeover Code,
2011 also lays down the manner of determination of the quantum of
acquisition of such additional voting rights.
This would be beneficial for the investors as well as the promoters, and
more so for the latter, who can increase their shareholding in the
company without necessarily purchasing shares from the stock market.
Also, the Takeover Code, 2011 mandates that calculation of the 5%
shares would be on the basis of gross acquisition and would not take
into consideration any parallel dilution of shareholding. Earlier it could
for instance have been argued that if someone acquires 10% and sells
5% shares in parallel transactions, the net increase in shareholding
would be taken into consideration.
1.3.
Indirect Acquisition
The Takeover Code, 2011 clearly lays down a structure to deal with
indirect acquisitions, an issue which was not adequately dealt with in
the earlier Takeover Code, 1997. Simplistically put, it states that any
acquisition of shares or control over a company, business or entity that
would enable a person and persons acting in concert with him to
exercise such percentage of voting rights or control over the Target
Company, which if directly acquired in the Target Company would have
otherwise necessitated a public announcement for open offer, shall be
considered an indirect acquisition of voting rights or control of the
Target Company.
12
Change of Control
13
Voluntary Offer
shareholders
and
promoters
to
consolidate
their
Offer Size
2.2.
Offer Period
The Takeover Code, 2011 provides that the offer period starts on the
date of entering into an agreement to acquire shares, voting rights in,
or control over a Target Company requiring a public announcement, or
the date of the public announcement, whichever is earlier and ends on
the date on which the payment of consideration to shareholders who
have accepted the open offer is made. Thus, unlike in the case of the
Takeover Code, 1997 this definition of offer period under the Takeover
Code, 2011 is now more descriptive with the addition of an explanation
of the events when the period will start and expire. The definition in
the Takeover Code, 1997 was comparatively vague as it stated the
offer period starts when the memorandum of understanding is signed
16
Offerees
Public Announcement
17
The
date
of
public
announcement
depends
on
the
nature
of
S.
No.
1.
2.
acquire shares.
Acquiring shares or voting rights or On the date of exercise of the
control upon conversion of convertible option to convert such securities
securities
conversion)
(without
or
upon
fixed
date
of
conversion
of
shares
Acquiring shares or voting rights or On
the
2nd
working
day
(with
fixed
date
conversion)
Acquisition pursuant to disinvestment.
5.
6.
acquisition
is
made
public.
Earlier of: (a) the date on which
primary
acquisition
is
acquisition
is
made
public.
On the date of passing special
resolution under section 81 (1A)
8.
back
not
qualifying
for
exemption.
9.
beyond
the
stipulated
threshold.
Acquisition wherein the specific date of Not later than 2 working days
acquisition of title of shares, voting from the date of receipt of
right or control is beyond the control of intimation of having acquired
the Acquirer.
3.2.
such title.
the
60
days
preceding
the
public
announcement.
(b)
sent to all the stock exchanges on, which the shares of the
company are listed for being notified to the general public ; and
(c)sent to the Target Company at its registered office for being
placed before the Board of Directors of such company.
3.4.
with the draft letter of offer. Simultaneously with the filing of the draft
letter of offer with SEBI, the Acquirer shall send a draft letter of offer
to the Target Company. Within 15 days of the submission of the draft
letter of offer to SEBI, in the event SEBI does not give comments, it
shall be assumed that SEBI does not have any comments to offer.
3.5.
Letter of Offer
Tendering Period
21
The tendering period shall start within 12 working days from the date
of receipt of comments from SEBI and shall remain open for 10
working days. The Acquirer shall within 10 working days from the last
date of the tendering period complete all requirements under the
Takeover Code, 2011.
3.7.
announcement. The same was allowed under the Takeover Code, 1997
but only after the completion of all the offer formalities. The
completion of the Acquisition will be subject to the Acquirer depositing
100% of the consideration payable under the open offer in an escrow
account. The Takeover Code, 2011 further provides that in cases
where the Acquisition is not completed before the expiry of the offer
period, the Acquirer is allowed to do so after the expiry of the offer
period but not later than 26 weeks from the expiry of such period. This
provision will allow the Acquirer to have a representation in the Target
Company and exercise control over it even before the completion of
the open offer.
4. Disclosure Requirements under the Takeover Code
4.1.
(a)
every stock exchange where the shares of the Target Company are
(b)
listed; and
the Target Company at its registered office.
The Takeover Code, 2011 provides for more frequent and stringent
disclosures on the part of the Acquirer. There has been a significant
amendment in the previous Regulation 7 of the Takeover Code, 1997
which dealt with the Acquisition of 5% and more shares or voting
rights of a company. Erstwhile Regulation 7 stipulated that disclosures
of shareholding have to be made on the Acquisition of more than 5%
10%, 14%, 54% and 74% shares in the Target Company. The
Takeover Code, 2011 removes the disclosure in 5 stages. Regulation
28 of the Takeover Code, 2011 states that a disclosure will be made at
the time of the Acquisition of 5% of the shares or voting rights in the
company. Under the Takeover Code, 1997 disclosure was required
when there is a prior -holding by the Acquirer of shares / voting rights
between 15 to 55% in the Target Company.
4.2.
Continual Disclosures
The limit for continual disclosures has been increased in the Takeover
Code, 2011 from 15% to 25% wherein every person who holds shares
or voting rights entitling him to exercise more than 25% voting rights
will make disclosure of the aggregate shareholding of such Acquirer
and PAC every financial year as of 31 March. The promoter of every
Target Company together with PAC shall have the same obligation. In
both circumstances, the disclosure has to be made within 7 working
days from the end of each financial year to:
24
(a)
Since
declaration
under
Regulation
8(2)
of
SEBI
(SAST)
improper.
There was no trading in the shares of the company during such
period of default.
Issues:
Whether the penalty imposed by the SEBI is justified?
25
Decision:
After taking into considerations the facts and circumstances of the case,
the Honble Tribunal held that failure to make disclosure under each
regulation constitutes independent offence attracting independent penalty
irrespective of the fact that whether the trading in shares were done at
the particular time of default, in the present case, obligation to make
disclosures under regulation 30(2) and 30(3) of SEBI (SAST) Regulations,
2011 is of mandatory in nature irrespective of declaration under
Regulation 8(2) of SEBI (SAST) Regulations, 1997, Accordingly SAT
dismissed the appeal and found no order to the cost.
2. ViratSevantilal Shah, AlokVirat Shah and RajanSevantilal Shah
v
SEBI
(Misc.
Application
No.
70
of
2014,
Decided
on
15.07.2014)
Facts:
Mr. ViratSevantilal Shah, Mr. AlokVirat shah and Mr. RajanSevantilal
Shah (Appellants/Noticee) had failed to make disclosures required
under Regulation 7(1) read with Regulation 7(2) of SEBI (SAST)
Regulations, 1997 and Regulation 29(2) and 29(3) of SEBI (SAST)
Regulations,2011. Accordingly SEBI imposed a composite penalty of
Rs.5,00,000 for the aforesaid violations on the Appellants. Being
aggrieved by the direction of SEBI, the Appellants had filed the appeal
before Honble Tribunal and contended that:
the delay.
Due to delay in making disclosures, neither the appellants have
made any unfair gain nor any loss caused to any investors due to
non-disclosure.
26
Exchanges.
Issues:
Whether the penalty imposed by the SEBI is justified?
Decision:
After taking into considerations the facts and circumstances of the
case, the Honble Tribunal held that since default was repetitive in
nature and delay in respect of second transaction being more than the
delay in the first transaction it is evident that the appellants instead of
being more careful after the first default, they were more carefree .
Accordingly SAT dismissed the appeal filled by Appellants.
3. Bhavook Tripathi v SEBI (Appeal No. 172 of 2012, Decided on
07.09.2012)
Facts:
2011.
The appellant has contended that the Board has given the direction to
comply the said Regulation on the basis of declaration made by Mr.
Manmohan Passi about which the appellant has no knowledge.
Moreover the Board has not sought any comments from the appellant
before giving such directions.
Issues:
Whether the Appellant is required to comply with the direction made by the
Board without having any knowledge of the declaration on the basis of which
the direction is given by the Board?
Decision:
Honble SAT disposed of the appeal with a direction to the Board to make
available a copy of the declaration and other material to the Appellant on the
basis of which the observation are made with in a period of two weeks. The
appellant may respond thereto within three weeks and the Board may issue
its comments/observations after considering the reply received from the
appellant.
CONCLUSION
The Takeover Code of 2011 is a timely and progressive regulation that would
facilitateinvestments and attract investors. Even though SEBI has not
implemented all the suggestions of the Achuthan Committee, it has still
taken into consideration some of the major issues that hadbeen plaguing the
industry till now. It has tried to maintain a balance between the concerns of
theinvestors as well as that of the promoters.
28
BIBLIOGRAPHY
Books:
Edition
Chandratre, K.R., Corporate Restructuring, Bharats, Second Edition,
2010
Articles:
Regulations, 2011, NUJS Law Review, Vol. 5(1), 2012, pp. 129
Varottil, U., Investment Agreements In India: Is There An "Option"?,
National Law School of India Review, Vol. 4(4), pp. 467, 2011
Web Links:
http://www.moneycontrol.com/master_your_money/stocks_news_con
sumption.php?autono=699522
http://www.mondaq.com/india/x/244878/M+A+Private
%20equity/SEBI+Plugs+Loopholes+In+Takeover+Code
http://www.deloitte.com/assets/Dcom-India/Local
%20Assets/Documents/SEBI_Takeover_Regulation_2011.pdf
http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research
%20Papers/Public%20M%26As%20in%20India%20%20Takeover
%20Code%20Dissected.pdf
29
https://www.pwc.in/assets/pdfs/indian-services/m-a-takeover-book-
final-lowres.pdf
http://student.rdias.ac.in/Uploads/amandeep.kaur/2-5.pdf
30